Greeks Bearing Debts
As Greek Talks Break Down, This is What Denial Looks Like

It only took 45 minutes for Greek and European negotiators to declare that a deal was unreachable on Sunday. Athens was given yet one more chance to formulate a counterproposal conforming to what the Europeans’ were insisting was their final set of parameters, but the difference between the two sides was described as being a “significant gap” of around €2 billion per year. The question of cuts to pensions and an imposition of additional taxes—issues that the Greek side has for months said is a red line for them—seemed to remain at the heart of the disagreement.

Meanwhile, reports rounded up by Open Europe suggest that a dynamic we feared on Friday has begun to develop—that far from having an “oh Zeus!” moment when the IMF walked from negotiations, Greek leadership has indulged itself in deeper and deeper levels of denial:

“We will wait patiently until the institutions become more realistic”, Greek Prime Minister Alexis Tsipras wrote in the Efimerida ton Syntakton daily, adding that “political opportunism” was driving the creditors to keep pressing Athens to make cuts to pensions. In an interview with the BBC Radio Four Today programme on Saturday, Greek Finance Minister Yanis Varoufakis said that demands for pension cuts were “silly” and a “deal-breaker”. When asked if he thought creditors were bluffing, he replied, “I hope so”. In a separate interview with Bild, Varoufakis called for a “clean sweep” for Greece to move away from the failed programmes from the past. He also called for a debt restructuring but then insisted that Greece was not asking for any further money.

Usually with statements like these, we assume the government is blustering to jockey for position in negotiations. Unfortunately, the 45 minute discussion would seem to indicate Tsirpas is not jockeying, but is in fact serious. And as we noted last week, the European creditors have run out of patience—and the Greeks seem not to realize it. The rest of the Open Europe report is chock-a-block with creditor officials making it clear that they’ve had enough. One in particular stood out:

European Commissioner Günther Oettinger warned that if no deal is found, “On July 1st, [Greece] will become a disaster zone.”

Meanwhile, investors battered Greek stocks and bonds, sending yields on 2-year debt up by an eye-watering 192 basis points and pushing the Athens General Stock Exchange index down by 7 percent at time of writing. More ominously, yields on Italian, Portuguese, and Spanish debt were up too, as investors begin to mull over just what the knock-on effects of a Greek default might be on some of the eurozone’s weaker members. On the Greek crisis (and potentially, as the markets indicate, the larger euro crisis), it appears that, despite what the leadership in Athens is telling itself, the rubber is finally meeting the road.

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